Conference Board Leading Economic Index for U.S. increased 0.4% in May

The Conference Board Leading Economic Index (LEI) for the United States increased 0.4 percent in May, following no change in April, and a 1.4 percent rise in March.

"The index points to continued, though slower, U.S. growth for the rest of this year," says Bart van Ark, chief economist of The Conference Board. "Public debt and deficits weigh heavily on growth prospects on both sides of the Atlantic. We project a serious slowdown in European growth in 2011, which could further weaken the U.S. outlook."

"The LEI for the United States has been rising since April 2009, and though its growth rate has slowed in 2010, it is well above its most recent peak in December 2006," says Ataman Ozyildirim, economist at The Conference Board. "Correspondingly, current economic conditions, as measured by The Conference Board Coincident Economic Index (CEI) for the United States, have been improving steadily since November 2009, thanks to gains in payroll employment and industrial production."

The Conference Board Coincident Economic Index (CEI) for the United States rose 0.4 percent in May, following a 0.4 percent increase in April, and a 0.3 percent increase in March. The Conference Board Lagging Economic Index (LAG) for the United States decreased 0.1 percent in May, following no change in April, and a 0.2 percent decrease in March.

The leading economic index is 12.0 percent above its most recent trough of March 2009 and it is 4.6 percent above its most recent peak in December 2006. The coincident economic index is 2.0 percent above its most recent trough in June 2009, but it is still 5.4 percent below its most recent peak of December 2007.

• The Conference Board LEI for the U.S. increased in May, and April's small decline was revised to no change. The financial components made the largest positive contributions to the index this month, more than offsetting the substantial negative contributions from stock prices and building permits. The six-month change in the leading economic index has moderated to 3.9 percent (a 7.9 percent annual rate) through May 2010, down from 5.2 percent (about a 10.6 percent annual rate) for the previous six months. However, the strengths among the leading indicators have remained widespread in recent months.
• The Conference Board CEI for the U.S., a measure of current economic activity, continued to increase in May, with all of its components rising. The six-month change in the coincident economic index stands at 1.4 percent (a 2.8 percent annual rate) through May 2010, up from 0.2 percent (a 0.4 percent annual rate) for the previous six months. In May, the lagging economic index decreased slightly, and with the CEI rising, the coincident-to-lagging ratio increased. Meanwhile, real GDP expanded at a 3.0 percent annual rate in the first quarter of 2010, following an increase of 5.6 percent annual rate in the fourth quarter of last year.
• The Conference Board LEI for the U.S. has been on an uptrend for more than a year now, amid widespread strength among its components. However, its six-month growth rate has continued to moderate. Meanwhile, The Conference Board CEI for the U.S. has been improving since November 2009, and its growth rate has picked up recently. Taken together, the current behavior of the composite indexes suggests that the economy will continue to recover, but the recent rapid expansion is not likely to be sustained in the near term.

Leading indicators: Five of the 10 indicators that make up The Conference Board LEI for the U.S. increased in May. The positive contributors – beginning with the largest positive contributor – were the interest rate spread, real money supply, average weekly manufacturing hours, the index of consumer expectations, and manufacturers' new orders for consumer goods and materials. The negative contributors – beginning with the largest negative contributor – were stock prices, building permits, manufacturers' new orders for nondefense capital goods, the index of supplier deliveries (vendor performance), and average weekly initial claims for unemployment insurance (inverted).

The Conference Board LEI for the U.S. now stands at 109.9 (2004=100). Based on revised data, this index remained unchanged in April and increased 1.4 percent in March. During the six-month span through May, the leading economic index increased 3.9 percent, with eight out of 10 components advancing (diffusion index, six-month span equals 80 percent).

Coincident indicators: All four indicators that make up The Conference Board CEI for the U.S. increased in May. The positive contributors to the index – beginning with the largest positive contributor – were industrial production, employees on nonagricultural payrolls, personal income less transfer payments and manufacturing and trade sales.

The Conference Board CEI for the U.S. now stands at 101.3 (2004=100). This index increased 0.4 percent in April and increased 0.3 percent in March. During the six-month period through May, the coincident economic index increased 1.4 percent, with all four components advancing (diffusion index, six-month span equals 100.0 percent).

Lagging indicators: The Conference Board LAG for the U.S. stands at 107.8 (2004=100) in May, with two of the seven components advancing. The positive contributors to the index were change in labor cost per unit of output and change in CPI for services. The negative contributors – beginning with the largest negative contributor – were the average duration of unemployment (inverted), commercial and industrial loans outstanding, and the ratio of consumer installment credit to personal income. The ratio of manufacturing and trade inventories to sales and average prime rate charged by banks held steady in May. Based on revised data, the lagging economic index remained unchanged in April and decreased 0.2 percent in March.